Why stagnation matters

Real median household incomes will be no higher in 2015–16 they were in 2002–03, more than a decade without any increase in living standards for those in the middle of the income distribution. We estimate that in the period 2009-10 to 2012-13 real median household incomes will drop by a whopping 7.4%.

History suggests this could have nasty consequences. Benjamin Friedman has shown that (pdf):

Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy…But when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress.

A new paper provides micro-level evidence to corroborate this. It looked at the impact of lottery wins on personality and found that money makes us nicer people:

The danger, then, seems clear. Economic regress might mean social regress - more conflict, anti-socialness and intolerance.
But herein lies a puzzle. There seems little evidence - so far - that this is happening (Clarkson and tram woman are of more interest to the psychiatric than the social sciences). Crime hasn’t risen much, the far right is a nugatory force, and people seem to be quite happy; I‘m not sure whether August‘s riots count as evidence here or not.
Which raises questions. Are there some mechanisms which offset the above tendencies and so cause economic stagnation to not have such adverse effects - some combination of peer effects and path dependency perhaps? Or am I misreading the evidence? Or will things change as I fear? I honestly don’t know. But I do know that this, rather than a few tweaks to fiscal policy, is the key issue.

Related

Young families were particularly hard hit by an “abrupt” slowdown in living standards in the year before the general election, a think tank says.
The Resolution Foundation found that average income growth halved to 0.7 per cent during that period compared with the previous year, the BBC reports.

Plunging levels of home ownership and an increased reliance on state benefits to top up salaries have meant that Britain’s middle-income families increasingly look like the poor households of the past, according to one of the UK’s leading thinktanks.

WASHINGTON — In cities across America, the middle class is hollowing out.
A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released Wednesday by the Pew Research Center.
In nearly one-quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That’s up from fewer than 10 per cent of metro areas in 2000.

In five years’ time, median income will be 4% higher than it is now, the Institute for Fiscal Studies predicts.
The recession and tepid recovery mean that from the start of the crisis to 2021, households will suffer the worst income squeeze for 60 years, reports The BBC.
They will be £5,000 a year worse off than they might have expected.
The IFS has produced a report on living standards for the Joseph Rowntree Foundation, which campaigns to reduce poverty.

The Daily Mail reports that “almost half of young women aged 18 to 25 would prefer to have large breasts than high intelligence.” This raises four issues about the role of preferences in the social sciences:

By Doug Short: Overview: The Sentier Research monthly median household income data series is now available for January. Nominal median household incomes rose 0.4% month-over-month, and 3.3% year-over-year. But adjusted for inflation, real growth was 0.09% MoM and 1.7% YoY. The traditional source of household income data is the Census Bureau, which publishes annual household income data each September for the previous year.

Steven HorwitzRobert Carroll of the Tax Foundation has written a new piece entitled "Income Mobility and the Persistence Of Millionaires, 1999 to 2007" that uses a set of household tax returns from those years to look at income mobility with a particular emphasis on the mobility of millionaires. I'll bullet some key findings then add a few comments below.